Tobacco in Israel

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Executive Summary

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Tobacco industry declines

The tobacco industry experienced high tax increases over the review period leading to a continual decline in volume sales. The high taxes along with the price increases by tobacco companies resulted in an increase in current value terms over the review period, even though volume sales declined. However, in 2015, the industry decreased in current value terms alongside a further decline in volume terms. This decline can be largely attributed to consumers switching to lower cost products, illicit trade, or quitting smoking.

Heavy taxes result in a shift to RYO

Due to the heavy taxation many smokers are switching to cheaper options. One of the popular options is RYO tobacco as it is fiscally interesting and increasingly fashionable amongst smokers. Rolling one's own cigarettes allows the smoker to determine the amount of tobacco they consume. While cigarettes sales continued declining in volume terms in 2015, RYO cigarettes experienced strong volume growth nearly doubling its volume sales for the second year in a row.

Local manufacturer continues to lose share

The tobacco industry is dominated by three large companies: Philip Morris Ltd (Israel), Globrands Ltd and Dubek Ltd. While Dubek manufactures the majority of its products, the other two import a number of recognised international brands. Many smokers prefer to smoke well-known brands, as they are perceived to offer higher quality. While Dubek's brands are not internationally recognised, they are typically sold at a lower price point as they are manufactured locally. The high taxes and the rise in minimum tax per cigarette greatly affected Dubek, with its share declining since the tax hikes of 2013.

Newsagent-tobacconists/kiosks continued to be the dominant distribution channel for tobacco in 2015. This channel is popular due to its convenient locations and hours, with many of them being open for 24 hours a day. Consumers can find a variety of cigarettes, cigars and smoking tobacco products in these outlets. However, consumers that are interested in purchasing more specialised products, such as vapour products and RYO tobacco, often turn to tobacco specialists for these purchases.

Tobacco is expected to experience negative growth

The industry is expected to decline in both constant 2015 value and volume terms over the forecast period. The prices of tobacco products are expected to remain high, encouraging smokers to switch to cheaper options, such as economy cigarettes and RYO cigarettes. The illicit trade market has been growing as well due to the high prices. If cigarettes prices were to see a further rise over the forecast period, then it is expected that the illicit trade market would grow significantly. Additionally, the Ministry of Tourism is expected to continue with its efforts to increase regulation on smoking and education on the hazards of smoking, which is expected to result in a decline in the number of smokers in the country.

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